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affect the agreement of trial balance (i,e, two sided error). Errors can occur as a result of not following the double entry principle, carelessness of the book keeper or accounting personnel and a complete omission of one or more accounting entry(ies).

There are different types of errors that its occurrence would not affect the agreement of trial balance total some of which are errors of original entry, errors of omission, compensating errors, errors of principle and errors of commission. Some of the reasons why trial balance totals may not agree are omission of a ledger account balance from the trial balance, entry of an amount in the same side of the ledger i.e. a debit entry posted as credit or a credit entry posted as debit, overcast: where one side of ledger account was added up by amount higher than actual and undercast: where one side of a ledger account was added up by an amount lower than actual.

SELF ASSESSMENT EXERCISE

1. Define suspense account and explain its uses.

2a. State the type of errors contained in each of the following statements

(i) Plant that was acquired at a cost of N75,000 has been credited in the cash book but debited to the purchases account in error.

(ii) The purchase of consumable tools for N2,500 had been debited to repairs accounts.

(iii) Bank charges of N2,750 shown on the bank statement have not been entered in the cash book.

(iv) A purchase invoice received from a creditor for N50,000 has been entered in the purchased day book as N5,000

(v) Wages paid of N4,000 have not been posted to the wages account and the debit side of the purchases account has been over-cast by N4,000

(vi) Rent received of N250,000 has been entered in both the cash book and the ledger as rent paid.

2b. Prepare journal entries to correct the above errors and state the narration.

Adapted from Institute of Chartered Accountants of Nigeria

5.0 SUMMARY

In this unit, we explained the meaning of error in accounting and also differentiate between error and fraud. Causes of error, types of errors not affecting the trial balance such as errors of original entry, errors of omission, compensating errors and errors of principle, errors affect the agreement of the trial balance, purpose of suspense account and how to prepare suspense account were discussed in the unit.

6.0 TUTOR-MARKED ASSIGNMENT

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Question 2: Chi Knitwear Ltd. is an old fashioned firm with a hand-written set of books.

However, the trial balance does not balance, the credits exceeding debits by £1,536. You are asked to help and, after inspection of the ledgers, you discover the following errors:

1. A balance of £87 on a debtor’s account has been omitted from the schedule of debtors, the total of which was entered as debtors in the trial balance.

2. A small piece of machinery purchased for £1,200 had been written off to repairs.

3. The receipts side of the cash book had been undercast by £720.

4. The total of one page of the sales day book had been carried forward as £8,154, whereas the correct amount was £8,514.

5. A credit note for £179 received from a supplier had been posted to the wrong side of his account.

6. An electricity bill in the sum of £152, not yet accrued for, is discovered in a filling tray.

7. Mr. Smith, whose past debts to the company had been the subject of a provision, at last paid £731 to clear his account. His personal account has been credited but the cheque has not yet passed through the cash book.

You are required to:

a. Write up the suspense account to clear the difference, and b. State the effect on the accounts of correcting each error.

Adapted from Chartered Association of Certified Accountants

Question 3: Mr. Happy Choice, an accountant found that the debit and credit columns of his trial balance did not agree. After cross checking his records, he discovered the following mistakes.

i. Depreciation on furniture N200 had not been posted to depreciation account.

ii. N5,000 paid to Adewale had been wrongly posted to Adewole.

iii. The total of sales book had been added N2,000 short.

iv. Goods worth N200 taken by the proprietor omitted to be recorded in the books.

v. N250 owing by a customer had been omitted from the list of debtors.

vi. The total of the bills payable book N23,000 had been posted to the credit of bills receivable account.

vii. A credit sale of N14,400 to Benjamin had been correctly entered in the sales book but Benjamin account had been debited with N12,400 only.

viii. The discount column of the three column cash book representing discount allowed to customer has been over casted by N4,259.

Which of the above errors caused the totals of the trial balance to disagree and by how much did the totals differ?

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

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Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn.

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UNIT 15: CLASSIFICATION OF EXPENDITURE BETWEEN